The opinion of the court was delivered by: BRIEANT
By an Order to Show Cause issued May 11, 1972, originally returnable on May 23rd and thereafter duly adjourned, Judge Frankel of this Court directed the defendants to show cause why an order should not be made restraining in part, the application of the defendant Price Commission's order, issued March 30, 1972, which approved a rate increase for defendant New York Telephone Company. The portion of such Price Commission order sought to be restrained approved increased rates for coin telephone service and hotel guest calls in excess of rates in effect prior to February 3, 1972. Plaintiff seeks, in effect, a rescission and roll-back of the rate increases.
Besides suing in behalf of its residents, under some theory of parens patriae, on a question which is concededly of great public interest, the City of New York is itself the user of coin telephones and hotel guest call services, in the case of its employees; particularly policemen and firemen who must call their headquarters from the field, and officials sojourning at Albany or elsewhere who are required to use hotel guest telephones. Thus, the City has a special interest in the subject matter, wholly without regard to whether or not it may sue in behalf of its residents as a class or as parens patriae, issues the Court does not reach on this application.
The action is brought pursuant to §§ 210 and 211 of the Economic Stabilization Act of 1970, Title II of Public Law 91-379, 84 Stat. 799, as amended. The pertinent regulations are found at 6 C.F.R. § 300.16.
On February 3, 1972, the Telephone Company instituted an increase in the rates charged for its telephone service generally, including the particular types of service referred to in the complaint. On February 14, 1972, the Price Commission ordered reduction of the rates to the levels in effect prior to February 3, 1972, pending Commission review.
Thereafter, on March 30, 1972, the Price Commission approved increased rates for the Company, which were instituted with respect to coin telephone calls and hotel guest calls on or about April 28, 1972.
The City contends that the Company failed to comply with reporting requirements contained in 6 C.F.R. § 300.16(d), (e) and (j), and further that the Price Commission acted arbitrarily and capriciously and in excess of its authority, and further that the Price Commission's order was not based on substantial evidence. In a prior action, 72 Civ. 577 (aff'd, June 30, 1972, see p. 12, supra), Judge MacMahon of this Court has previously denied a preliminary injunction. His Memorandum Opinion is dated March 1, 1972 and reported at 339 F. Supp. 198.
Rate regulation with respect to public utilities, is limited by constitutional and statutory requirements. By statute, in New York, a telephone utility is entitled to rates which shall be "just and reasonable" and shall be made with due regard, among other things, to a "reasonable average return upon the value of the property actually used in the public service." Public Service Law, § 97, McKinney's Consol. Laws c. 48; Matter of N.Y. Tel. Co. v. Public Service Commission, 286 App. Div. 28, 142 N.Y.S. 2d 68 (1955), aff'd 309 N.Y. 569, 132 N.E. 2d 847 (1956), cf. Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591, 64 S. Ct. 281, 88 L. Ed. 333 (1944).
As stated in D.C. Transit System v. Washington Metro. &c Commission, 121 U.S. App. D.C. 375, 350 F.2d 753, at page 778:
"A 'just and reasonable' rate is one that assures that all the enterprise's legitimate expenses will be met, and that enables it to cover interest on its debt, pay dividends sufficient to continue to attract investors, and retain a sufficient surplus to permit it to finance down payments on new equipment and generally to provide both the form and substance of financial strength and stability. A rate fixed without particularized reference to these needs does not satisfy any standard of rate making of which we are aware, . . ."
New York has apparently not adopted the "original cost" principle for regulation of telephone utility rates, and therefore may not have asserted its legislative regulation of such rates to the fullest reach of constitutional power. However, if rates of a utility are found, on a record before a state commission to be "just and reasonable", it may well be concluded that any less than the approved earnings would be "confiscatory" and therefore unconstitutional.
Therefore, federal price regulation raises a different and more serious issue of due process when applied to a regulated public utility.
The ordinary vendor of goods or services regulated by the Price Commission has a remedy if he is not satisfied with Price Commission determinations; he may just withdraw from the market. A regulated public utility cannot do this. Matter of N.Y. Tel. Co. v. Public Service Comm., 286 App. Div. 28, 30, 142 N.Y.S. 2d 68. It must continue to render services, using the property which it has irrevocably committed to the service of the public. In return for this permanent dedication of its property, a utility is granted the right by statute, having constitutional aspects, ...